Venture capitalists spent $48.3 billion on new U.S. companies in 2014

SAN FRANCISCO – Cash rained down on startups in 2014, as venture capitalists poured a whopping $48.3 billion into new U.S. companies – levels not seen since before the dot-com bubble burst in 2001. Strong technology IPOs are luring investors chasing the next big return, but with valuations this high, critics suggest some investors may be setting themselves up for a major fall.

“It’s not that many businesses aren’t viable, but the question is, what are you paying for them?” said Mark Cannice, a professor of entrepreneurship at the University of San Francisco.

Venture funding surged more than 60 percent in 2014 from the prior year, most often fueling software and biotechnology companies, according to a new “MoneyTree Report” issued by PricewaterhouseCoopers and the National Venture Capital Association, based on data from Thomson Reuters.

Uber Technologies, the ride-hailing service disrupting the transportation industry and generating plenty of press, received the top two biggest rounds of investment last year. Each raised $1.2 billion for Uber, and the company’s value is now pegged at $41 billion. Other major deals included $542 million (mostly from Google Inc.) invested in Magic Leap Inc., a secretive startup working on virtual reality technology; $500 million in Vice Media, which operates online news and video channels; and $485 million in SnapChat, the popular messaging service.

U.S. tech startups are proving they can reach vast global markets and reap sizable revenue, according to Mark McCaffrey of PricewaterhouseCoopers. And there are more investors eager to get a piece of that return – private equity and hedge funds and corporate investment divisions are vying with traditional venture capitalists to back promising startups. But critics say some companies may never make enough money to justify the sky-high valuations.